Don’t Look At The History Books For Insight Into This Recovery

While the mood was not somber as in years past, the discussion revolving around the economy at the Federal Reserve Bank of New York’s Community Bankers Conference was one of a transitioning set of fundamentals, and a deeper understanding of “why it is different this time.”

The economy is clearly on a path of recovery, and any chart of any metric would suggest the same. The astounding facts though, were of how this recovery was different than those of the past recoveries, and the data was compelling. Eleven consecutive quarters of positive GDP growth was offset by the level of slack still in the economy. While core inflation is running higher lately, forward-looking indicators suggest a slowdown in the inflation rate.

There may be a shift occurring in our economy and whether permanent or temporary, new norms will have to be considered. One such norm was the relationship between the unemployment rate, currently at 8.3% and the employment rate, currently declining to a rate of 67%. If the employment were to rise and become positive, the unemployment rate actually may settle to a previously unthinkable new higher normal in the 6 – 7 % range.

These and other indicators point to a very gradual recovery, with much slack remaining in our economy, for now. Close attention needs to be paid to trends occurring in the present, with much less reliance on historical trends. We are seeing these trends play out in real life on Main Street as well…